The chair has many times pointed out how the vix level is an indication of future moves on the SPX. The VIX seems to be under great pressure here, even with yesterday 2% fall on the SPX the VIX was down, that must be highly unusual. Just an observation.

Greg Calvin writes: 

 It seems there have been numerous unusual moves in VIX recently. Similarly, today's VIX movement thus far is interesting in contrast to the market's paint-drying picture, and the relative movement in contrast to for example, yesterday's relative moves intraday.

Vitaliy N. Katsenelson writes:

I've met a money manager yesterday who explained to me that the decrease in risk premium is driving the market up (and vice versa). He showed me a nice chart that displayed risk premium as inverse P/E (earnings yeild) less 10 year Treasury. This major problem with that concept is that E over last 3-5 years did not really represent a true earnings power of S&P, it overstated it. P/E was too low. Margins reverted towards the mean -declined, E declined and took market with it. I'd suggest to use a ten year traling P/E, at least it will cover the full economic cycle and thus margins will be normalized and P/E (or earnings yield) will be more meaninfull.




In recent months the market has become more volatile. This volatility has led to further evolution in the traditional option to underlying linkage. In many cases we are seeing the option move the opposite to its traditional correlation with the underlying.

For example, the calls on the Russell 2000 index ETF (IWM) sometimes drop when the underlying goes up. Even on days when IWM is up more than 2% the calls will often drop. The reason for this paradoxical behavior is the simultaneous radical change in expected volatility. When the market goes up the VIX will usually fall. The correlation is a powerful -83%. When VIX falls options become less valuable. Specifically we are seeing the VIX effect completely overwhelming the effect of delta.

To trade this successfully one needs both a directional model and an ability to predict volatility. The ability to merely predict direction is no longer sufficient.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Greg Calvin writes:

We have also seen call options hold their value on days the market/underlying is headed down fast. A misplaced sense of comfort may arise in these situations. One needs confidence that the underlying will rebound in the future planned trading time frame, as the IV settles back down and time decay marches on. I have found option spread trading to be one way to [sometimes more than] offset losses on long calls or puts due to IV drops. The sold calls or puts will also drop in value when IV declines. In addition to vertical spreads, calendar spreads can provide opportunities when front month options have significantly higher IV. Volatility tends to increase not only when underlyings decline, but also as announcement events approach. Lagging into spreads as volatility increases is particularly attractive, as the higher IV premium tab gets picked up by someone besides you.

Diego Joachin remarks:

I think options' behavior is the underlyings' subconscious. It reveals the fear of players. That's why studying volatility is more important now.



An observation from watching the Kruger Battle is the difference in speed and resolve of predators vs prey. The lions, and the alligator for that matter, move in fast for the kill. The predators may wait hours or days, but when attack is decided upon, it happens in the blink of an eye.

Note in contrast the fits and sputtering attempts of the herd to defend its offspring. Even the largest bulls are hesitant and fearful initially to confront the predators, but only lunge in here and there, risking life it seems when fully engaging a lion with physical contact, as the vulnerable head and neck of the bull are in such close proximity to those deadly horns. The defense of the calf takes time, as the courage of individual bulls emboldens others, and the lions one by one get the message.

Movie Fan reminisces:

From Jaws:

"Quint: Y'all know me. Know how I earn a livin'. I'll catch this bird for you, but it ain't gonna be easy. Bad fish. Not like going down to the pond and chasing bluegills and tommycocks. This shark, swallow you whole. No shakin', no tenderizin', down you go. And we gotta do it quick, that'll bring back your tourists, put all your businesses on a payin' basis. But it's not gonna be pleasant. I value my neck a lot more than three thousand bucks, chief. I'll find him for three, but I'll catch him, and kill him, for ten. But you've gotta make up your minds. If you want to stay alive, then ante up. If you want to play it cheap, be on welfare the whole winter. I don't want no volunteers, I don't want no mates, there's too many captains on this island. Ten thousand dollars for me by myself. For that you get the head, the tail, the whole damn thing. "



The spirited Nasdaq appeared to to be fighting the downward gravitational pull of the Dow and S&P earlier in the day. Succumbing to gravity in the early afternoon, tech has summoned a second wind and is tugging the other indices to join. Another gravitational picture for tech that comes to mind is a satellite, orbiting a planet represented by the previous close. They both move through space and time toward a greater destination. Alternatively, Nasdaq looks like it's snowboarding a half-pipe. Does it fall back into the pipe as we close? Or can it jump out of the pipe, and cruise along the rim? Meanwhile S&P fell into a canyon for a day's journey. Does it has the legs left for the climb by the close to see Grofe's sunrise?



 This is grillin', not BBQ, but I just had to pass it on anyway. A friend here in British California got himself a nice, new, giant Weber "Genesis" grill. Given the size, it ought to be called the "Missouri" or the "Invincible". It plugs right into an outside gas line, so no external tank needed.

One of his specialities is to put a bunch of sun dried tomatoes, parsley, garlic and herbs in a food processor, whip it into a pesto, and then spread it in a thick layer on the skinless side of a properly prepared (i.e., de-boned) slab of fresh-caught salmon. Then he puts the salmon skin-side down on that Weber and cooks it until it's just firming up but still juicy. Meanwhile, he's tossed big chunks of onion, mushrooms, peppers and squash in olive oil, added salt and pepper, and roasted them in a veggie tray, also in the Weber.

Throw in a bottle of Rigamorole (blended Riesling and Gewurtz) from the Okanagan, and fresh blueberries for dessert, and it's one of the best meals I've had in a long time.

Greg Calvin adds: 

I have put one of these Webers to good use after obtaining it through the certified pre-owned program. The Genesis is a well-constructed grill that provides for even distribution of heat throughout the chamber, making it ideal for when you don't want to flip the food. The design is flare-up resistant, and higher models generally have more stainless steel.

This grill is not perfect for BBQ as the burners run side-to-side, but this is a minor gripe. The Summit line provides front-to-back burners as well as other accessories at a substantial jump in price. Weber's customer service is even better than its grills.

Some simple equipment lessons learned:

If you're using propane, get a spare tank. It's a minor cost, and eliminates some 'uh oh' bbq moments. Keep the grate clean, keep it oiled, or seasoned. Finally, get a second opinion — Check the built-in thermometer with a good oven thermometer. This is especially important for BBQ and roasting.

John Bollinger writes:

Get some swordfish steaks, one per person. Wipe 'em and spread one side thickly with a mixture of Dijon mustard, a little good olive oil, a bit of sea salt and a few good cranks on the pepper mill with a mix of peppercorns. Let 'em sit while you fire up your grill. Grill 'em mustard side up, without turning. The heat cooks 'em from the bottom up and the acid cooks 'em from the top down. Five to seven minutes should be right depending on the thickness of the steaks and the temperature of the grill.

Webers: I have three, a little Smokey Joe, an 18" One Touch and an old 22", so I always have the right tool for the job. They sit in a line like the three bears. Use hardwood charcoal if you can get it. Mesquite charcoal is cheap and plentiful here. My local liquor emporium sells it in 50 pound sacks for the cost of a 20 pound sack of the standard toxic oil-refinery briquettes.


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